To understand the direction of the market in both uptrend and downtrend we can use Charting and Technical Analysis Fred McAllen.
Charting and technical analysis Fred McAllen use an up or downtrend
Moving averages
When two moving averages cross up ( golden cross), it is a buy signal. It is a sell signal when they cross down. You need to set the setting to display them on a chart.
1. I use 50 & 200 MA as a guide for medium to long-term trade. Normally, people consider it a bear market when the price is below 200 MA and a bull market when it’s above 200 MA.
2. Most people use 20 & 50 EMA, especially trading currencies. I use 3 & 13 EMA for trading from 5 minutes to a few days/weeks. It seems to get in & out of the trade a little quicker with these stock trading signals settings. You may need to experiment with this to fit your requirement as some work better on certain financial instruments
MACD
I use both histograms and signal lines. The default setting works most of the time, but I would change it to 5, 35 & 5. It seems to work better. Ideally, when it’s trending up, the MACD histogram should be in the positive part. When it slows down & begins to turn negative, it’s a sign of trend reversal.
I also look at the signal lines to see if they cross up or down for buy or sell stock trading signals. When the stock market timing signal diverges with price, a trend reversal is imminent.
Use these technical analysis indicators when prices are oscillating or in a horizontal range
Charting and technical analysis Fred McAllen when prices are oscillating or in a horizontal range
Stochastics
Default settings work quite well most of the time. But you may adjust it to 20,12,9 as some stocks seem to fit better with these settings.
When it’s below 20%, it’s considered as oversold & overbought when it’s above 80%.
Buy stock timing signal is when the two signal lines cross up, especially when it happens at or below the 20%
Sell stock trading signals are when these two signal lines cross down, especially when it happens at or above 80%.
Relative Strength Index ( RSI)
I normally use the default setting as 14. A buy signal is when it’s above 50. Sell stock trading signals are when it’s about to go below 50.
Volume
Can be used for trending and sideway/oscillating moves. Without volume, prices won’t move, especially on small-cap/ penny stocks. It’s a matter of supply and demand. When prices are rising, you need the trading volume to go up. When prices are decreasing, the volume should also decrease.
When you have volume diverge with price, an imminent price/trend reversal will take place however temporary it may be.
Have a look at these 2 S&P; 500 charts. The 1st is a rough gauge at the medium to long-term view. See how the 50-day ( red line) moving average acted as a support/resistance line.50 & 200 MA crossed up on July 06 and crossed down on Jan 08.
Will it break down past the previous support /resistance and into the next support area near July 06 low, where the vertical line is showing?
The next chart zooms in a little nearer. See how the 3, 13 EMA works a little better if you sell at the top. Although this is a downtrend, you still can use the oscillating indicators for the small up & down movement within the trend.
Note, the volume went up on the lowest bar in late Jan, MACD signal lines crossed up, MACD histogram turned positive, RSI heading up and Stochastics already crossed up. These stock trading signals tell you to buy, even though it’s a downtrend. An ideal trade setup for a few days.
Prices seem to be in a trading range or going sideway from late Jan to April. So you can’t rely on moving averages.
Note, in mid-March with the lowest price bar, MACD signal lines crossed up, MACD histogram turned positive, and Stochastics already crossed up and heading above 20%. My market matrix analysis predicted a turning point near that day. I had no hesitation but placed an up bet on that day and keep moving my stop loss until the next predicted turning point.
When I saw stochastics begin to cross down for the 2nd time, MACD slowing down, and RSI heading down, I moved my stop loss to lock in profit to be just below the low of the highest bar in April. I was out of this trade at a very nice little profit.
I use these stock market trading signals in conjunction with Dynamic Trader software for my Market Matrix analysis. I will show you this software and analysis on another page.
Although these indicators lag behind the price, the above does work, especially in conjunction with support and resistance. All you need to do is to learn these simple stock trading signals by heart and apply them to your trades.
See how the price falls to a certain support level before bouncing toward the resistance level. Also, when the price begins to break the trend lines ( left and right diagonal lines) and fails to return to the line, a change in direction is likely to occur. This did happen in our case.
So to make some money I would place a buy-stop order above the resistance/support of 1330 on 1st April and then keep moving my stop loss to lock in profits to below 1360 once it passed the other two support/resistance levels.
Stock market charts do not lie. They paint a picture of investors’ greed and fear which drive the price up & down. Looking at the above chart, wouldn’t you agree that it is full of emotions? It was a big swing trading up, down, sideways, down, etc.
You can use technical indicators with all the above as confirmations to buy and sell and also to confirm changes in trend directions. Most stock trading charts software, either free or paid have these indicators.